Josh Ennis
Director
Property and Development
As we all know, the transfer of all real property in Victoria typically incurs stamp duty (subject to some limited exceptions).
In addition, if a company or unit trust holds an interest in land with a market value of $1,000,000 or more, the transfer of shares in that company or units in that trust may also be dutiable under the landholder duty provisions.
As a refresher, in general terms, landholder duty can be charged where:
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a company or trustee of a unit trust is a ‘landholder’ because it holds interests in land (or improvements on land) with an unencumbered market value of $1 million or more; and
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a person acquires a ‘significant interest’ in that landholder.
A significant interest is generally 50% or more in the case of private companies, or 20% or more in the case of private unit trusts. Critically, these percentages aren’t always easily determined as they can be aggregated with interests acquired or held by ‘associated persons’ or under ‘associated transactions’.
This was illustrated in the recent Oliver Hume case which you may be familiar with.
This case is a timely reminder and stark warning for anyone involved in capital raisings where land is an underlying asset.
In the Oliver Hume Case, the landholder company was established as a special purpose vehicle for the purposes of property development. It purchased a development property in Diamond Creek and paid duty. The company then circulated an Information Memorandum seeking to raise development funding of $1.8 million. The company received the funding and allocated shares to 18 different investors.
No duty was paid at the time of allocating the shares, but some years later the Commissioner of State Revenue issued a notice of assessment of duty, plus penalty tax and interest.
The Court upheld this assessment as despite none of the 18 investors individually acquiring a significant interest the Court found that that individual interests should be aggregated (counted together) as an ‘associated transaction’.
Despite the individual investors not being known to each other and their details remaining confidential the Court concluded that their individual acquisitions nevertheless constituted an associated transaction, because they formed, evidenced, gave effect to, or arose from, substantially ‘one arrangement’, or alternatively ‘one series’ of transactions.
The factors the Court considered can be summarised as follows:
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The acquisition of each investor was interconnected/interdependent because no individual acquisition could go ahead unless a total of $1.8 million was raised.
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The investors became bound by the landholder company’s constitution, which provided for a single land development project via an entrenched management structure, after which the company was to be wound up.
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There was a ‘oneness’ to the acquisition of each investor’s interest in the landholder, because the acquisitions happened on the same day, and in the same way, resulting in the landholder’s shareholding being substantively altered, from a developer SPV to an entity owned by a group of private investors.
